SPACE ODYSSEY 20-Jul-09 -

GLOBAL EQUITIES RESEARCH

Focus this week will be Bernanke’s Testimony tomorrow and earnings releases from both the US and Europe intense all week long. Earnings reports will be packed with market-moving names. More than a third of the companies in the Dow Jones Industrial Average are slated to report their latest quarterly results, including AT&T (T), Boeing (BA), Caterpillar (CAT), Coca-Cola (KO), DuPont (DD), Microsoft (MSFT) and 3M (MMM), among others. On a macro front, will just take a look at house price index on Wednesday and the Existing home sales on Thursday which will provide clues regarding the possibility of a bottoming from the housing sector in the US.
Bernanke’s appearances on Capitol Hill, previously known as the Humphrey-Hawkins testimony, will follow the normal two-day format, with the chairman speaking to the House on Tuesday before returning to make identical comments to the Senate on Wednesday. We expect him to get a fairly rough ride on both days, with plenty of tough questions on the Fed’s handling of the financial crisis, particularly its role in the Bank of America takeover of Merrill Lynch. A strong performance this week would increase the chances of Bernanke being reappointed next January . A weak showing might leave the door open for Larry Summers. But already Obama seemed to give a lot of credit to Bernanke, and the nice earnings and increasing macro environment makes the Obama-Bernanke team a winning one . Players will try to read through Bernanke comments if further quantitative easing program would be scheduled, although the Minutes from the Fed meeting last week showed that the Fed is happy of the increasing signs of economic pick up, with some more impact from the initial stimulus to be seen as it takes time to reach the real economy and it is conducted gradually. About the unwinding of the stimulus, we already know that the Fed plans to monitor the monetary policy weapon according to the demand, and doesn’t plan to sell back the bad loans they bought before a very long time.
Last week reflected some better days for both the banking and the housing sectors. After overall better earnings from banks, both the NAHB and the housing starts confirmed the bottoming of the housing industry. The 3.6% rebound in US housing starts to 582,000 annualised in June, from 562,000, would have been even stronger if not for a big drop in the volatile multi-family home starts category. In addition, starts in May were revised up to 562,000, from 532,000. Not only both sectors will not be a drag on the economy in H2 anymore, but they should even help to be a boost, and at least bring some safety to the economic recovery.
Fund managers might be back. Trading has been trapped in a chartist bearish head & shoulder the prior week which has not been confirmed on the downside, while the fundamental news appeared to be amazingly positive whatever bull or bear opinions all last week long. It makes no doubt now that the US economy is on track to recover, and rather sooner than later. Strategists from banks will have to review their forecast, which should unleash some trillions sleeping in monetary funds ready to jump into equity business. The bottom-up reading of the economy thanks to last week’s earnings should make them loose patience and not wait for the July 31 st important Q2 GDP .
Remember also that the summer will be friendly. Not only we will start talking 2010 pe and no longer 2009 to price single stocks valorisation, making the market be cheaper, but more than everything the H2 will be very friendly in term of base effect as it is during that time that the worldwide economy suffered from a thermal shock following the Lehman bankruptcy, which reminded that no one is too big to fail and created a spill over effect from the financial crisis to the overall economy.
Given the lack of possible leadership today CIT story might be the focus, and might prevent our expected consolidation day. CIT Group has reached a $3 billion rescue-financing agreement with key bondholders that will allow the business lender to avoid bankruptcy, according to a media report Sunday. The deal was expected to be announced on Monday, The Wall Street Journal reported in its online edition late Sunday. CIT was in talks for funding to avoid bankruptcy. It was trying to negotiate rescue financing with a group of bondholders. The bondholder group is advised by the investment bank Houlihan Lokey. The 101-year-old lender to small- and medium-sized businesses could have been filing under the bankruptcy laws as soon as Monday if it couldn't come to terms on a rescue. At the same time, media reports say, should CIT Group file under the bankruptcy laws, it is trying to line up debtor-in-possession financing with a group of banks to fund its operations under bankruptcy-court supervision. The banks might include J.P. Morgan Chase, Morgan Stanley, Goldman Sachs and Barclays. The report said Morgan Stanley has been hired to advise CIT in the restructuring. Evercore Partners Inc. also was hired as a bankruptcy adviser. The firm eventually could become the only adviser in case of a bankruptcy since JP Morgan and Morgan Stanley are existing creditors and would face a conflict of interest. CIT story was a last desperate reason for bear players to hold some shorts.
In the meantime, it would not be too surprising if today ‘s session was a consolidating one, opening up and ending flat ahead of so many earnings tomorrow, but would not play short in such an environment, and rather take opportunity for any too sharp drop to step in. 2549 to be broken anytime

ECONOMIC DATA WITH IMPACT

Leading Indicators (15h UK) expected 0.5% from previous 1.2% / suggest recession close to an end / minor for today focus earnings
Fed’s Lockhart (18h30 UK) speaking on economic outlook

POSITIVE IMPACTS

DEUTSCHE POST expects a pre-tax profit of €1.38 bn in its mail division in 2009 (Die Welt) (Q2 Nresults expected on Thursday 23)
EADS : The 7 countries that have ordered the A400M won't take advantage of their right to cancel orders at the end of July (Der Spiegel)
HSBC has shortlisted 4 to 5 investment banks to handle its planned listing on the Shanghai Stock Exchange / HSBC could list A shares as early as the first half of next year, and will offer at least $3 bn worth of shares (The Apple Daily)
GSK is negotiating with up to 30 different countries about supplying them with a vaccine for swine flu (The Sunday Times)
UNITED UTILITIES is reviewing its business, which could lead to a sale worth over £800 m later this year (The Independent on Sunday)
AIR FRANCE rejected a report that predicted it would run low on cash next year and face bigger losses if air traffic did not pick up and oil prices reached new highs =Air France said it had €4.5 bn of cash at the end of June and €1.2 bn available through credit lines.
GDF SUEZ is eyeing Brazil's power markets & is mulling the creation of a new nuclear power facility in the South American country (FT)
SANTANDER bolstered by increasing numbers of its U.S. bank branches, should offer hefty returns to investors for years ahead and become better known to American investors (Barron's)
AGRICOLE sees no requirement to trim its 5.8% stake in Intesa Sanpaolo to meet antitrust restrictions (CEO)
LLOYDS/RBS may have to sell part of their biz under proposals to be announced by the opposition Conservatives on Monday (Times)
STM planned to invest $1.25bn in its French plant by 2012, with financial support from the French government
ROCHE said its Xeloda, in combination with oxaliplatin, has been shown to be effective in early colon cancer
UBS : Swiss foreign minister said she would meet with U.S. secretary of State on July 31, 3 days before the settlement deadline for a U.S. tax case against UBS
FRIENDS PROVIDENT : Resolution is likely to table a sweetened bid proposal this week, including a cash element and a commitment on dividends (Reuters)
SAP said it will fully acquire SAF Simulation / SAP intends to offer SAF shareholders an amount of €11.50 per share, which represents a 9.5% premium according to the XETRA closing price (€10.50)

SEMICONDUCTORS : Taiwan Semiconductor said that global semiconductor makers' revenue will likely decline 15% in 2009 instead of a 20% drop estimated earlier, as the worst is likely over for the chip industry…
CIT's board approved a deal with bondholders Sunday for $3bn in rescue financing (Reuters) that will enable it to avoid bankruptcy
ICELAND is expected to announce today a long-awaited €1.5bn recapitalisation of its banking sector & unveil a deal to hand control of 2 of the country’s healthy new banks to foreign creditors… (FT)

NEGATIVE IMPACTS

VOLKSWAGEN is planning to buy all of Porsche (Der Spiegel) / VW will pay €8bn + would also buy Porsche's network of dealerships from its family owners, a move that could raise an additional €3 bn for Porsche / Under the deal, the Porsche's shareholders, would get 50% of the shares in the merged VW-Porsche Co / Lower Saxony would maintain its 20% holding & the door would be open for Qatar to buy between 14.9% and 19.9% / VW’s plan to take over Porsche could face a €3 bn tax bill (Sueddeutsche Zeitung)
PORSCHE has wracked up €14 bn in debt in its failed attempt to take full control of Volkswagen (Bild)
SEB : Q2 revenue SK13.2Bn (12.1bn e) / NII 5.4bn (5.8bn e) / Operating 618m (1.64bn e) hit by SK2.3bn loan writedowns / Total cost 9bn(6.6bn e) / Loan Loss 3.57bn (3.36bn e) / Tier 1 Cap Ratio 13.1% / Said that coming quarters will be challenging
PERNOD RICARD said it expected FY operating to be at the lower end of its 3-5% growth target range (as exp. by some analysts) but added it had suffered a 3% drop in like-for-like sales in the Q4 (worst than exp.)
EDF : Chief of staff of President Sarkozy, promised voters that future price increases in electricity would be "extremely limited."
INFINEON’s CEO said his company can escape a breakup & could be an acquirer in the next phase of consolidation in the sector (FAZ)
HRX may need more capital from the state than previously believed (Chairman in Welt am Sonntag)
ENI : Italian authorities have searched the offices of an Eni subsidiary as part of an inquiry into a bribery scheme for building natural gas facilities in Nigeria

OIL : A senior Iranian oil official said a significant rise in crude oil demand is "improbable" until 2010 and the price per barrel of crude likely won't exceed $72 in 2009 (Shana news agency)

TRADING IDEAS

BUY AIR FRANCE to play economic recovery should be highlighted by the earnings season + time is a great heeler, the crash impact will fade

BUY BAYER / SELL BASF // BUY PEUGEOT / SELL DAIMLER // BUY TOTAL / SELL ENI // BUY AEGON / SELL ING

BROKER METEOROLOGY

CABLE & WIRELESS STARTED AT BUY BY ING
ASML RAISED TO BUY FROM NEUTRAL BY BANK OF AMERICA
ELAN RAISED TO BUY FRO M NEUTRALBY UBS
SANDVIK RAISED TO EQUALWEIGHT FROM UNDERWEIGHT BY MORGAN STANLEY
EUROPEAN CAPITAL GOOD SECTOR RAISED TO INLINE FROM CAUTIOUS BY MORGAN STANLEY


INFINEON CUT TO HOLD FROM BUY BY RBS
DSM CUT TO REDUCE FROM NEUTRAL BY NOMURA

DATA

WTI : 64,1 (3,84 %)
Eur/$ : 1,4158 (0,40 %)
$ /Yen : 94,68 (-0,90 )
10 Yr US : 3,65 ( 0,4 bp)
10 Yr Euro : 3,40 ( 6,3 bp)

Indices : US close ; Europe close
SOX : 1,22 %;-0,31%
S&P :-0,04 %; -0,50 %
DOW: 0,37%; -0,08 %
NAS :0,08%; -0,46%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 0,00 %; -0,06 %
ENERGY : 0,00 %; 0,01 %
FINANCIAL : 0,01 %; -1,33 %
HEALTHCARE : 0,00 %; -0,32 %
TECHNO : 0,00 %; -0,11 %
TELECOM : 0,00 %; -0,11 %
INDUSTRIAL : 0,00 %; -1,28 %
UTILITIES : 0,00 %; -1,02 %

TO BE COMING

Today
Results :Boliden / SEB Skandinaviska Enskilda Banken / Texas Instrument (AMC) / Halliburton
Dividend :
Events :Wyeth AGM

Tuesday
Results : Hermes sales / Iberdrola Reenovables / Nordea / Svenska Handelsbanken / Nordea Bank / OZ Minerals / AMD (AMC) / Apple (AMC) / Caterpillar (11.30 GMT) / Dupont (BMO) / Lockheed Martin (BMO) / Merck & Co / Schering-Plough (BMO) / Coca Cola Co / United Technologies (BMO) / Yahoo! (AMC)
Dividend :
Events:

Wednesday
Results : Fiat / Glaxo Smith Kline / Iberdrola / BHP Billiton production / Ingenico sales / Tele 2 / TomTom / Norsk Hydro (BMO) / Sand Disk / Pfizer / Elli Lilly (BMO) / Morgan Stanley / Boeing (11.30 GMT) / Pepsi / Qualcomm / eBay (AMC) / Bank of New York / Wells Fargo (BMO) / Altria (11.00 GMT) / Qualcomm / US Bank Corp / Alcon (AMC) / Eli Lilly
Dividend : London Stock Exchange (GBp 17,77778) / Suedzucker (€0.40) / Colgate-Palmolive ($ 0.44) / Procter & Gamble ($0.44)
Events :

Thursday
Results : Saint Gobain (AMC) / Technip (BMO) / Telenor (BMO) / Unibail Rodamco / Credit Suisse / KPN / Roche / Logitech / BroadCom / ConoccoPhillips / Stora Enso / Bankinter / Lonza / Scania / Bristol Myers Squibb / American Express (AMC) / AT&T (BMO) / Xerox / Amazon / Mc Do / 3M / Microsoft (AMC) / Union Pacific / Philip Morris Internat / Manpower / Wyeth (BMO)
Dividend :
Events:

Friday
Results :Vodafone / ABB / United Utilities / Acciona / Danone / Ericsson / Kesko / Saab / Ericsson / Metso / Merck KGaA / Syngenta / Havas sales / TF1 / Telia Sonera / Ford Motor / Schlumberger / Black & Decker
Dividend :
Events: